Effissimo Capital Management: Our Thinking as It Relates to Proposal No. 1 at Toshiba Corporation�s Extraordinary General Meeting of Shareholders

SINGAPORE–(BUSINESS WIRE)–Toshiba Corporation (“Toshiba”) has submitted Proposal No. 1, “Confirmation of Shareholders’ Views on Proceeding with the Examination of Strategic Reorganization,” for consideration at the Extraordinary General Meeting of Shareholders scheduled for March 24, 2022. Effissimo Capital Management Pte Ltd�s (“Effissimo,” “we,” “our”) position on this Proposal is as follows.

1. Executive Summary

• The Separation Plan (“Separation”) proposed by Toshiba, would mark a turning point both for Toshiba’s corporate value and for its future as a company, and would be irreversible – meaning any error in judgment here would yield irrevocable consequences.
• The Separation may ultimately damage Toshiba’s medium- to long-term corporate value.
• Toshiba’s current management structure inclusive of its Board of Directors (“Leadership Team”), is not in a position to craft such an irreversible and momentous plan nor can it be held accountable for properly executing such plan. A trustworthy Leadership Team should be established, followed by a thorough vetting of the strategy under that team, and finally the management team that contributed to its formulation should be held responsible for its impact by leading its implementation of the strategy.
• In view of these circumstances, Effissimo has decided to vote against this Proposal. We hope Toshiba will bring closure to the current turmoil and establish a Leadership Team that is trusted by its shareholders and other stakeholders.

2. Detailed Explanation.

The Separation, if enacted, would profoundly impact all stakeholders, and would mark a turning point both for Toshiba’s corporate value and for its future as a company. Because the Separation calls for a divestiture that would involve the sale of several businesses and the separation of Toshiba into two completely independent legal entities, the Separation would be irreversible – meaning any error in judgment here would yield irrevocable consequences.

In order to vote in favor of the Separation, therefore, one would need to hold an unwavering conviction that the Separation would lead to a medium- to long-term increase in Toshiba’s corporate value. However, we are deeply concerned this is not the case given the circumstances surrounding the Separation – which have been decidedly fraught, spurring a great deal of anxiety among stakeholders – as well as in view of our analysis of the currently available information on the Separation and of the context that led to its deliberation. The Separation may ultimately damage Toshiba’s medium- to long-term corporate value.

Importantly, Toshiba’s Leadership Team suffers from a number of significant issues, including but not limited to the following.

First, trust has yet to be restored with shareholders and other stakeholders.¹

Second, it lacks sufficient management resources.²

Third, individuals who were to be held accountable for the future impact of the Separation have resigned from their roles as executive officers of the Company.³

Fourth, the new CEO is serving on an interim basis, and has not received a vote of confidence as a director from shareholders at a general meeting of shareholders.⁴

Fifth, the Board’s current composition is unprecedented in Japan: it does not include directors who also hold officer roles at Toshiba.⁵

It is evident, given the above, that Toshiba lacks the requisite Leadership Team here – one that is capable of crafting a strategic plan with such irreversible and profound consequences for the Company, and which would hold accountable all parties with their associated responsibilities in order to properly execute such a plan.

What we have in front of us is a strategy that would carry irreversible and profound consequences for the Company, and which has been formulated without Toshiba having first restored the trust of all stakeholders, including shareholders. This strategic plan has yet to be vetted at a general meeting of shareholders, and the individuals who formulated the strategy have since stepped down from their executive roles, shifting accountability for its execution to newly assigned provisional executive officers, including the new Interim CEO.

As shareholders responsible for Toshiba’s future, we require – at minimum – the establishment of a Leadership Team trusted by its shareholders and other stakeholders, and for sufficient deliberations on strategy to take place under such a structure. Then, once shareholders have approved the strategy, the Board and management team that have contributed to its formulation should take ownership of it and also lead its implementation. This is the standard manner in which a corporation should be managed, and it is the way in which these highly critical matters should proceed as well.

In view of the above, we have decided to vote against Proposal 1. We believe that, in consideration of Toshiba’s current situation, no strategic plan should be approved that would impact the Company as irreversibly and as profoundly as would this Separation. We hope Toshiba will bring closure to the current turmoil and establish a Leadership Team that is trusted by its shareholders and other stakeholders.

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¹ Based on the recommendations of the Governance Enhancement Committee established in connection with the “Pressure Issue,” Toshiba states that it will continue to make efforts to restore the trust of shareholders and other stakeholders, which was undermined by the issue. (“Notice Regarding Recurrence Prevention Measures Based on Suggestions in Investigation Report of Governance Enhancement Committee” dated Dec. 16, 2021)

² Toshiba had initially planned to elect 13 directors at last year’s annual general meeting of shareholders, but the number of directors has been reduced to 8 as a result of the withdrawal or rejection of some director nominees for election, as well as a director resignation. Consequently, the number of directors remains below that considered appropriate by Toshiba’s own Corporate Governance Guidelines.

³ The CEO and Corporate Senior Executive Vice President were both representative executive officers and directors playing a central role in formulating the proposed Separation, and should be held responsible for the Separation’s future impact on Toshiba, yet both have abruptly resigned as executive officers effective March 1, 2022.

⁴ The new CEO and COO are still undergoing a performance review by the Board and are said to be “interim” – a term articulated to mean they will remain provisional until they are confirmed to be performing well enough to be suitable for the role of representative executive officers.

⁵ As the two representative executive officers have resigned from their executive roles, the Board’s current composition does not include directors who also hold officer roles, meaning there is no company management representation on the board. This will remain the case for roughly four months from the current date, until the annual general meeting.

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